DoneDeal Car Price Index: Pricing Stability showing signs of return
Despite car price inflation now at 69.7% more than pre Covid-19 levels, there are signs of stabilisation.
DoneDeal’s Motor Price Index is the result of independent third Party economic analysis of DoneDeal’s data by economist Tom Gillespie.
2022 was undoubtedly another exceptional year in the used car market. The lingering effect of the pandemic microchip shortage, coupled with Brexit and then the outbreak of war in Ukraine caused significant disruption to both the supply of, and the demand for, used cars. In the first 9 months of 2022 used car prices rose by an average quarterly rate of 4.7%. Despite expectations of a slowdown in price inflation in Q3, it remained strong at 3.5%. However, in the last three months of 2022, it seems that price inflation has finally slowed to a more ‘normal’ level.
We generally refer to 2018/19 as ‘normal’ years in the motor market, when the supply of used cars from the UK, and new car production, was generally meeting the demand of Irish consumers, and as such, prices were quite stable. The average rate of quarterly inflation for that period was 1.1%. The quarterly rate of price inflation in the last quarter of 2022 was just 1.4%, the lowest rate of inflation seen since Q3 2019.When we compare prices now to this time last year, they are 16.2% higher, comparing to the start of the pandemic, Feb 2020: 69.7%.
Supply & Demand on DoneDeal:
The inevitable slow down in price inflation at the end of 2022 could largely be attributed to several supply and demand side factors. In terms of supply, wait times for new cars have started to reduce as microchip production slowly catches up with demand in the motor industry, in turn, this eases the pressure on the almost-new used car market. On DoneDeal, the number of active listings is up 19% when comparing the stock of active ads on January 1st to December 1st, suggesting a slight recovery in supply more generally.
On the demand side, the cost-of-living crisis inevitably means that big ticket items such as cars are given more careful consideration from a household budget perspective, dampening demand. In-depth analysis of ad view trends on DoneDeal gives an insight into consumer demand over the past year. In the last three months of 2022, demand fell by 17% quarter on quarter, which largely is in tune with the observed slowdown in price inflation.
Price Index by Car Price Point:
Focusing on the average rate of inflation across all price ranges of cars hides the tale of two sides. Throughout this inflationary period, there has been a marked difference in inflation in the upper and lower end of the market. The supply and demand effects on inflation are very different when we compare lower priced cars (< €6,000), to higher priced cars (> €20,000). In the upper end of the market Q4 saw a 1.1% rate of deflation. This is the first time that deflation has been observed in the price index for this end of the market since Q1 2020, just before the onset of Covid.
As car production catches up with demand, newer used cars are less in demand from consumers who have a preference for straight-from-the-factory-floor cars. In the lower end of the market there is a different story, prices rose by 4.7% in the last three months of 2022. For the lower end of the market the Celtic tiger year cars are rapidly becoming obsolete, and replacing the supply of older/cheaper cars can only come from overseas. For many people who live in rural Ireland and are in the lower end of the income distribution, there is a strong reliance on a car for transport, therefore demand does not fluctuate much for this cohort.
Coupling this necessary demand with choked supply due to Brexit restrictions, means that inflation in used cars continues to be driven by the lower end of the market. As prices continue to rise in the lower end of the market, cars are becoming less affordable, lower in safety standards, and higher in emissions.
Encouraging signs for Electric Vehicles:
Despite the difficulty in removing older, and more polluting cars from Irish roads, there continues to be encouraging signs when it comes to the EV market. A total of 15,678 new electric cars were registered in 2022, an increase on the 8,646 registrations seen in 2021 and 3,444 in 2019 (SIMI). In Q4 of 2022 (although usually this quarter sees much fewer new registrations) EVs accounted for 30.7% of new car registrations, just marginally below petrol, whose share amounted to 31.5%.
The used car market for EVs and hybrids, although still quite small (<1% of total used cars for sale), continues to grow as the boost in new car registrations in EVs in 2020 starts to trickle into the used car market. Despite very strong price inflation in EVs in Q3 of 2022, the last three months of 2022 saw EV used car inflation slow to 0.8%. Similarly, used hybrid car price inflation slowed to 1.5% in Q4. This slowdown in EV/hybrid price inflation can largely be attributed to their place in the upper end of the price distribution (the median price of a used EV on DoneDeal is €24,995) for cars and the corresponding rates of inflation observed in that price range in the last quarter of 2022.
Car Price inflation - Real world indicative examples:
We took a sample of cars with different age and value profiles to better illustrate what car values might look like for buyers and sellers in the market today.
DoneDeal is the largest car marketplace in Ireland, listing 9 out of 10 cars advertised online from car dealerships in Ireland. Economist Tom Gillespie analysed over 5m of DoneDeal’s vehicle listings from 2011-2022 using hedonic regression analysis to isolate pricing inflation associated with vehicles after controlling for mileage, age, and other vehicle attributes.